The House Always Wins: Prediction Markets, Insider Trading, And Your Business’s Risk

Prediction market exchange Kalshi has announced new compliance measures requiring users to disclose their employer before placing bets in markets linked to material nonpublic information. The announcement comes as federal prosecutors have brought criminal charges in high-profile insider trading cases tied to prediction platforms and Congress has increased its oversight of the industry.

Companies with employees who participate in prediction markets, particularly those with access to nonpublic business information, should assess their exposure now.

What Kalshi Is Doing

Kalshi, regulated by the Commodity Futures Trading Commission (“CFTC”), will require users to submit an online form identifying their employer before placing bets in markets linked to material nonpublic information. The requirement will apply to sensitive categories including company performance and national security events.

The changes follow a report from an independent audit committee of former senior government officials and academic experts. The committee found that Kalshi's existing system required manual, after-the-fact review to identify potential insider relationships, and recommended that collecting employer information upfront would improve market surveillance and serve as a deterrent.

In most cases, Kalshi will not independently verify the employment information provided unless suspicious activity is flagged, at which point it will investigate and seek proof of employment. The company is also launching enhanced whistleblower features alongside these changes.

Notably, the audit committee's report disclosed that Kalshi made more than 20 referrals to the CFTC and the Department of Justice in the first quarter of 2026 alone.

The Google Case: A Warning For Corporate Insiders

Here in the United States, the CFTC has previously issued guidance that platforms, such as Kalshi and Polymarket, operate as Designated Contract Markets (“DCM”). Because CFTC regulates event contracts that are traded on DCMs, trading on material nonpublic information in these markets can trigger the same criminal statutes that apply to traditional commodities fraud cases.

The most consequential recent federal prosecution is the case of Michele Spagnuolo (“Spagnuolo”), a staff information security engineer who worked at Google for over 12 years. In May 2026, prosecutors in the Southern District of New York charged Spagnuolo with commodities fraud, wire fraud, and money laundering. The government alleged that Spagnuolo, who traded under the pseudonym “AlphaRaccoon,” accessed Google's confidential internal data on 2025 search trends before publication and used that information to place bets on Polymarket, netting approximately $1.2 million.

The government's identification of Spagnuolo relied not only on Polymarket's cooperation with law enforcement but also on independent investigative methods. As Polymarket's chief legal officer stated publicly after the indictment was unsealed: it is not anonymous. Blockchain-based trading is transparent and traceable, and bad actors leave footprints.

Google stated that while the internal tool Spagnuolo used was available to all employees, using confidential information to place prediction market bets was a serious breach of company policy. Google placed Spagnuolo on leave and is cooperating with law enforcement.

This case followed the arrest earlier in 2026 of a U.S. Army Special Forces master sergeant charged with using classified information about a military operation to profit from Polymarket bets — further demonstrating that federal prosecutors are actively pursuing this conduct across sectors.

What This Means For Your Business

These developments carry direct implications for companies across industries. Key considerations include:

• Prediction market activity creates legal exposure for corporate insiders. The Google case confirms that using employer-held, nonpublic information to trade on prediction markets can support criminal charges under federal commodities and fraud statutes — even when the platform is offshore and unregulated.
• Employer disclosure requirements expand your company’s footprint in these investigations. Kalshi’s new policy means that if an employee’s account is flagged for suspicious activity, that employee’s employer will be identified as part of the inquiry. Companies may find themselves drawn into investigations with little advance warning.
• Anonymity is not a reliable shield. Federal prosecutors have demonstrated they can identify traders on both regulated and unregulated platforms through a combination of platform cooperation, blockchain tracing, and open-source investigative methods.
• Employee policies may need updating. Most workplace policies prohibit trading on material nonpublic information in securities markets. Given recent enforcement activity, companies should consider whether those policies extend to prediction markets — and whether employees understand that they do. Certain major banks in the United States have begun amending their policies to include language covering prediction markets.
• Referral volume is rising. With more than 20 CFTC and DOJ referrals in Q1 2026 alone, and both Kalshi and Polymarket deepening cooperation with federal authorities, the pace of enforcement is likely to increase.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.